Two years in to the Obama term, American companies are reacting to his anti-free market regime in one (or more) of four ways: by becoming wards of the federal government, fleeing offshore, fleeing to business-friendly states, or fighting back.
The “ too big to fail” banks and insurance giants, and “ Government Motors” and Chrysler have become extensions of the regime, playing lap cat Mr. Bigglesworth to Obama’s Dr. Evil.
Some American businesses continue to flee to business-friendly foreign locales, hollowing out their North American operations and staying afloat with overseas profits.
Other companies (with lots of overlap with point two) seek (additional) refuge by relocating in whole or part to more biz-friendly states within the U.S. Over the last 40 years, for example, California witnessed an exodus of old industrial companies (manufacturing, chemicals, logging, mining, etc.) Today that exodus has picked up speed as California tech, biotech, and even renewable energy firms crowd the exit lines seeking lower taxes, less regulation, and lower costs in Nevada, Utah, Idaho, Texas, and Mississippi.
But the most interesting phenomenon is the companies and their owners who have chosen to fight back against a government-directed economy. Before explaining that statement, I acknowledge that the government has become too powerful to ignore at every level, if you are in business in the United States.
Lobbying directly or through trade associations is a ubiquitous feature of business life today. Campaign contributions are even more so, especially if you are a business dependent on government contracts. But even if you’re not, government tax policy and compliance with regulation tsunamis that affect every business take up an increasing amount of a business owner’s or executive’s time.
Here’s what’s new in the resurgence of Atlas Shrugged moments.
States are caught between a growing demand for services, skyrocketing costs of unfunded liabilities for state workers’ pensions and health plans, and declining revenues.
Some states turn to economic growth for the answer: North Dakota boasts a balanced state budget, low taxes, and a biz-friendly atmosphere. Her 672,000 residents enjoy a 3.8% unemployment rate. Farmers are prosperous, ditto for miners. High-tech companies swarm the Red River Valley. But the North Dakota economy really kicked into high gear with the oil boom. Private land out of reach of the Obama moratoria yielded more than $12 billion in oil sales last year.
By contrast, high tax, regulation-happy states such as Illinois and California continue to wonder why they can’t balance their budget by raising taxes, mandating a “prevailing wage,” promising even higher public-sector wages and benefits, and imposing more “protections” through regulation.
In Illinois, the reelected Democrat governor and Democrat-dominated state legislature seek relief for the state budget by raising all taxes—by taking more money from every worker’s already-stretched-thin budget.
For a company to legally be forced to collect state sales tax on sales within Illinois, the company must have a “nexus” within the state—usually an office, store, etc.
Amazon did not have a physical nexus in Illinois. The state defined the 6,000 Amazon affiliates’ websites as a sufficient “nexus” and asked Amazon to start collecting sales tax on items sold to Illinois residents. The affiliate websites host ads for Amazon on their sites and get a commission when shoppers click through to buy on Amazon.com.
Amazon continued direct online sales to Illinois residents but cut affiliate ties with the 6,000 Illinois-based websites, with the result that the state doesn’t get the sales tax revenue and 6,000 affiliates lose income.
California is contemplating passing the same “Amazon” tax. Amazon has threatened to sever ties with more than 10,000 California affiliates’ sites, calling the law unconstitutional and a threat to California jobs.
Last year, Texas demanded $269 million dollars in uncollected sales tax from Amazon, this time because Amazon owned (through a subsidiary) a physical nexus—a warehouse in Irving, Tex.
In response, Amazon closed the warehouse, fired the warehouse workers, and refused to pay the Texas sales tax. States are now suing Amazon. Amazon is standing its ground.
At long last, there is hope that the producers and innovators will demand their rights in a country and an economy where their rights to private property are routinely violated.
In 2011, will Atlas shrug?